Thinking of Buying a Fast-Casual Franchise? Read this report first.
QSR Feature
Cut Costs, Keep Quality
As food costs continue to rise, operators must find ways to do more with less.
Food cost is a major concern for the food service industry.

A lot of things keep restaurateurs up at night, but high on the list for quick-service operators in 2009 is the rising cost of food. Eighteen percent expect it will be the top challenge they face this year, according to the National Restaurant Association (NRA). After skyrocketing to near 30-year highs in 2007 and 2008, food-cost increases are expected to slow this year, but experts still expect prices will rise nearly 3 percent.

With food cost already biting off about one third of sales, operators have no choice but to take action. From swapping specs and tweaking recipes to shrinking portions and raising prices, many are experimenting with ways to cut costs. But there’s a thin line between trimming the fat and ruining the meat.

“The flight away from quality is a slippery slope,” says Eric Arthur, owner and president of Marketplace Management Group, a Tennessee-based purchasing and distribution management firm. In an industry that specializes in offering more for less, any perceived drop in quality will send customers down the street. Here, experts offer suggestions for getting more from your food dollar without alienating guests.

Fight Fuel Costs

One of the main factors contributing to the 8-percent increase in food costs felt in 2008 was the price of oil, which reached record highs last year. Distributors were paying more to ship product, so they passed the increase on to restaurants.

Though oil prices relaxed, delivery charges can still tack as much as $150 to $200 onto the bill. To mitigate the cost, opt for fewer but larger drops.

“Making fewer deliveries helps [distributors’] cost, and they will pass that on to you,” says Joe Dunbar, president of Fairfax, Virginia, food-cost consulting firm Dunbar Associates.

Charlotte, North Carolina–based chicken chain Bojangles’ Famous Chicken ‘n’ Biscuits is also taking advantage of backhauling, scheduling drops so trucks can return to the distribution center with another full load.

“We’ve decreased our shipping costs by improving how product gets to our suppliers,” says Bojangles’ CEO and President Randy Kibler. “Now they don’t have to pay for someone else to do that.”

At Lake Forest, California–based burger chain Johnny Rockets, the purchasing team negotiated with suppliers to fix fuel-surcharge increases according to a schedule, making it easier to plan.

Villa Enterprises, whose holdings include Villa Fresh Italian Kitchen, Green Leaf’s, Bananas Smoothies & Frozen Yogurt, and South Philly Steaks & Fries, has decentralized its supply chain so product doesn’t have to travel so far. By using straw manufacturers on both coasts, the company cut costs by about $20,000 per year. Next year, it hopes to do the same with pizza sauce, potentially saving as much as $100,000, says Senior Vice President of Operations Andrew Steinberg.

Work with Suppliers

Some of a restaurant’s greatest partners in the fight to cut food costs are its suppliers, but like any partnership, it has to go both ways.

“You’ve got to be a good customer,” Dunbar says.

Part of that means paying promptly. Those who pony up in a week or less could get a discount, whereas customers who take more than a month and a half are likely to be billed more.

It also pays to leverage buying power. In the past, Bojangles’ allowed franchisees to buy some items from different vendors. By consolidating and reducing SKUs by a quarter, the company was able to buy more cases from each vendor at a better price, Kibler says.

The key to working out a deal, experts say, can sometimes be as simple as asking for it.

“You only get what you ask for,” says Marketplace Management’s Arthur. “No operator is going to get a decrease in cost if they don’t ask for it.”

Page 1 | 2 | 3 | Next